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Stamp Duty & Land Tax Explained

When it comes to buying a home, there are a lot of expenses you need to take into consideration. Along with legal costs and agent fees, it is likely that you will also have to pay stamp duty or land tax.

Here is everything you need to know about how land tax works and how much you will have to pay on your next home.

ENGLAND, NORTHERN IRELAND & WALES

What is Stamp Duty?

Stamp Duty - or Stamp Duty Land Tax (SDLT) in official terms - is charged to buyers in England, Northern Ireland and Wales when purchasing a residential property or piece of land, that costs more than £125,000, or £300,000 for first time buyers. This tax applies to both freehold and leasehold properties – whether you’re buying outright or with a mortgage.

How much is Stamp Duty?

Stamp Duty is calculated based on the value of the home. The table below explains how the rate you pay varies depending on the price of the property.

Purchase price

Stamp Duty percentage

£0 - £125,000

0%

£125,001 - £250,000

2%

£250,001 - £925,000

5%

£925,001 - £1.5m

10%

£1.5m +

12%


To help make sense of the price brackets, if you bought a property for £350,000 for example, the Stamp Duty payable would be 0% on the first £125,000, 2% on the second £125,000 (£2,500), and 5% on the final £100,000 (£5,000) – so in total you would pay £7,500.

It is important to keep in mind that a higher rate of stamp duty applies to the purchase of additional properties like buy-to-lets and second homes costing more than £40,000. 

You can use HM Revenue & Customs Stamp Duty calculator to work out how much tax you will need to pay.

What if I’m a first-time buyer?

Following the 2017 Autumn Budget, Stamp Duty has been scrapped for first time buyers in England, Northern Ireland and Wales, on properties up to the value of £300,000. A reduced rate of tax will be applied for properties up to £500,000, where first time buyers will pay 5% tax on the difference.

So, to break it down, this means that if you’re purchasing your first home at a cost of £350,000, the Stamp Duty payable would be 0% on the first £300,000, and 5% on the remaining £50,000 (£2,500) – so in total you would pay just £2,500.

How and when do I pay Stamp Duty?

Stamp Duty must be paid to HMRC within 30 days of taking possession of your new property. In most cases your solicitor or conveyancer should be able to help you with this but if not, you will need to contact HMRC directly to make the payment.

HMRC accept several different payment methods including by phone, online at your bank or building society, at the post office or you can pay by cheque.

If you fail to make payment within 30 days, HMRC may charge you a penalty fee and/or interest.

Are there any exemptions?

You may be eligible for tax relief in certain situations, which can reduce the amount you pay.

For example, Stamp Duty doesn’t apply if you have been left a property in a will or receive it as a gift – however other taxes might apply (such as inheritance tax). You will also be exempt if the property has been transferred to you following a divorce, separation or the end of a civil partnership.

Visit the gov.uk website for the full list of Stamp Duty exemptions.

SCOTLAND

What is Land and Building Transaction Tax?

In Scotland, when you buy a property or a piece of land that costs more than £145,000 you will pay Land and Buildings Transaction Tax (LBTT) instead of Stamp Duty.

How much is land tax in Scotland?

Land tax in Scotland, like in the rest of the UK, is calculated on a percentage basis, however the thresholds are slightly different. The below table sets out the tax percentage you will pay for each price band.

Property Cost

Tax Percentage

£0 - £145,000

0%

£145,001 - £250,000

2%

£250,001 - £325,000

5%

£325,001 - £750,000

10%

£750,000 +

12%


It is important to note that an Additional Dwelling Supplement tax applies to the purchase of buy-to-let properties and second homes of £40,000 or more.

You can work out the amount of LBTT you will need to pay on your next residential property purchase with Revenue Scotland’s tax calculator.

How and when do I pay LBTT?

Your solicitor will usually make the arrangements for your LBTT to be paid, however if they don’t, land tax returns can be submitted using Revenue Scotland's online portal, or manually by completing a paper LBTT form and paying by cheque. Revenue Scotland do not accept payment over the telephone or by cash.

If you fail to make payment within 30 days of taking possession of your new property, you will be charged a penalty fee. Full details of how to make a payment can be found here.

Are there any exemptions?

There are several types of land transactions which are specifically exempt from LBTT or that offer tax relief.

If a piece of land or a building has been gifted, or the ownership transferred to you (like in a will for example) you will not have to pay land tax. You will also be exempt if the property has been transferred to you as a result of divorce, separation or the end of a civil partnership.

Take a look at the Revenue Scotland website for the full list of LBTT exemptions.

 

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